Rackspace’s recent decision to discontinue its pure Infrastructure as a Service (IaaS) offering in favour of “managed cloud” services is further evidence that it is the cloud rather than the data centre providers most at risk of becoming commodities – as I originally forewarned here back in May.

Take Rackspace’s exit from IaaS as a sign of things to come. Many more Cloud services are already well on the way to being commoditised and their providers will see their margins increasingly competed away.

During the past couple of years Rackspace has been attempting to compete with low-price competitors such as Amazon Web Services, Microsoft with its Azure Service and Google in the IaaS market. But now they are going back to their roots as a managed provider rather than attempting to be a carbon copy of Amazon. That’s how they made it in the early days. The business model of a managed cloud provider is much different to the approach taken by AWS and Google which offer pay-as-you-go IaaS on-demand services.

Some cloud pundits believe Rackspace’s move is a sign of broader changes in the market. The pure IaaS market is now perhaps between Amazon, Google, Microsoft and IBM who have the financial muscle to invest in research and development and new data centres, and can also afford to do so without offering high-margin support services on top.

In contrast, the data centre product comes in many different ‘non-standard’ varieties such as where it’s located affecting price of real estate and wages, Tier level, type of colo space required, total power capacity and what’s available per rack, connectivity choices, service levels, and so on. All of these directly influence both the quality of the product and its price, therefore keeping modern purpose designed data centres well clear of the ‘commodity zone’. And because of the high upfront investment required for land, power, planning and construction, data centre operators expect long term contracts with customers for ensuring cast iron returns on investment.

So for most data centre operators the forecast remains good - there’ still no sign of the Cloud’s growing commoditisation raining on their parades.

About the author

Nick Razey is co-founder and CEO Next Generation Data, owner and operator of Europe’s largest data centre, NGD Europe. A Physics graduate, MBA holder and Chartered Engineer, Nick has over 25 years' experience in the telecoms industry.